Investors shave 5% off Gillette on stake sale plans

Promoter P&G challenges Sebi on interpretation of its sell-down proposal

Investors in Gillette India lost five per cent of their wealth today after its promoter announced it had moved the Securities Appellate Tribunal (SAT) against the markets regulator for rejecting its proposal to bring its shareholding to 75 per cent from 88.76 per cent.

Procter and Gamble (P&G), the promoter of Gillette, said it had moved SAT against the Securities and Exchange Board of India (Sebi) over the interpretation of its proposal to sell down shares in Gillette and thereby meet the shareholding norms.

Though the company did not give any detail on the interpretation of the sell-down proposal, a legal source said Sebi was not convinced with the proposal, as shares were not being offloaded to the public directly. Such a model, Sebi felt, would circumvent its public shareholding norm, the source said.

The regulator has given a June deadline to all listed companies to bring the promoter stake to 75 per cent with a minimum 25 per cent of public shareholding.

But investors pulled down the company’s shares by seven per cent during early morning trade, as they were expecting the company to launch a delisting offer and not a litigation. Gillette’s shares closed five per cent down at Rs 2,145 a share on Monday on the BSE.

When contacted, a P&G spokesperson said: “Since the matter is sub judice, we will not be in a position to share further information at this stage. The company remains committed to complying with the new law and engaging with Sebi to find a resolution to achieve compliance.”

This is the second high profile case in which a multinational is trying to retain its stake in the company by changing the interpretation of Sebi norms. Earlier, Blackstone gave a proposal to Sebi, saying one of the promoters of Gokaldas Exports Ltd, the Hindujas (not the Hindujas of London), have ceased to become the promoter. Hence, its promoter's stake has come below the 75 per cent level from 87 per cent. Sebi, however, rejected the proposal, saying this was not meeting its public shareholding norm, as the Hindujas will continue to retain shares in the company.

Legal sources say by moving SAT against Sebi, P&G has taken a risk, as if it fails to get a favorable response from the higher courts, then it will have to sell shares in a hurry, as the deadline to meet the norm is coming fast.

Sebi has repeatedly warned companies from seeking a relaxation to the 25 per cent public shareholding norms. It has already warned the companies that if they fail to meet the public shareholding norms or try to delay the process then they will have to face the legal consequences. This could include barring promoters from raising funds from capital markets, removing scrips from the derivative segment, and initiating adjudication and prosecution action against the erring companies.

A number of Indian companies have recently launched follow-on offers to bring down the promoter’s stake to meet the minimum shareholding norms.

In June 2010, Sebi had amended the Securities Contracts Regulations Rules to raise minimum public shareholding to a uniform 25 per cent and gave three years to the companies to bring down the promoter stake.